US & World Daily Markets Financial Briefing 12-01-2010

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Stocks May Slide as Reining-in Measures Amid Uncertain Growth Trigger Concerns

The major U.S. index futures are pointing to a lower opening on Tuesday, with sentiment taking a hit from lackluster results reported by aluminum giant Alcoa (AA). The less encouraging results should stir concerns of the profit recession continuing unabated. The Chinese central bank’s announcement of raising the reserve requirement, seen as a precursor for an interest rate hike, should come as dampener, even as traders debate over the sustainability of the recovery.

An economic report released earlier in the day showed a wider than expected deficit for November, mainly as a results of rise in oil imports. Most of the pre-announcements announced yesterday after the markets closed were bordering on the negative. Although there are not many meaningful catalysts from Main Street, traders may express apprehension ahead of some key market moving economic numbers to be released on Thursday and Friday.

After robust growth data from China and a consequent rise in oil prices gave a flying start to the U.S. markets on Monday, sentiment deteriorated thereafter. The major averages dipped below the unchanged line in early trading, as apprehensions over Alcoa’s earnings and a lack of catalysts created uncertainty and pushed traders to the sidelines.

After showing some volatility, the Dow Industrials rose steadily to close up 45.80 points or 0.43% at 10,664, while the S&P 500 Index moved back and forth across the unchanged line for much of the session before closing up 2 points or 0.17% at 1,147. However, the Nasdaq Composite continued to languish in negative territory to close down 4.76 points or 0.21% at 2,312.

The breadth among the Dow components was more or less even, with sixteen of the thirty stocks closing higher, while the remaining fourteen declined. Alcoa rose 2.53% ahead of its earnings and Caterpillar (CAT) surged up 6.28%. Chevron (CVX), Coco Cola (KO), United Technologies (UTX), Wal-Mart Stores (WMT) and Exxon Mobil (XOM) also posted notable gains. On the other hand, American Express (AXP), Boeing (BA), Disney (DIS), Home Depot (HD), IBM (IBM) and Microsoft (MSFT) declined sharply.

Among the sector indexes, the Dow Jones Transportation Average rose close to 1% and the Dow Jones Utility Average gained 1.05%. On the other hand, the Philadelphia Oil Service Index fell by about 1%.

Canadian Stocks Set To Pull Back Tuesday

Bay Street is likely poised for a slack opening Tuesday as traders might prefer to lock in their profits, capitalizing the recent run-up. Canadian stocks have been moving higher in 2010, since gathering a triple digit gain in the first session of the year. The U.S. futures also point to a weak opening.

The main index added nearly 2% in the year, falling only on two of the six trading sessions. Yesterday, the S&P/TSX Composite Index rallied past the 12,000-mark for the first time since September 2008, only to end flat on profit taking. The index closed the previous session at 11,947.13. trimming 6.70 points or 0.06%.

A fall in the prices of oil and commodities may weigh on the resource heavy Bay Street. The price of crude oil dipped near $81 per barrel after hitting a new 15-month high at $83.95 in the previous session. The price of bullion eased $2.3 to $1,148.4 an ounce.

In corporate news, discount retailer Dollarama Inc. said some of its shareholders, including Bain Capital LLC, will be divesting nearly 12 million shares at C$21.50 to a group of banks.

Emulex Corp. posted second-quarter preliminary non-GAAP earnings per share of $0.16 - $0.17 exceeding the high end of guidance of $0.10 - $0.12.

Matrikon Inc. announced a flat first quarter earnings of C$0.09 per share. Similarly, Velan Inc. posted third quarter earnings of C$0.34 per share, compared to C$0.34 per share in the prior year quarter.
 
Forestry plantation operator Sino-Forest Corp. said its wholly-owned subsidiaries acquired China based engineered wood product maker, Homix Limited for $7.1 million.

Four companies lining up to take a potential stake in struggling entertainment company CanWest Global Communication face roadblocks to reaching a deal, the Globe and Mail reported Tuesday.

Satellite component maker COM DEV International reported a dip in its fourth quarter earnings at C$0.01 per share, compared to C$0.07 per share in the year-ago quarter.

American Creek Resources announced that it has appointed Robert Edwards as Chief Financial Officer effective January 1, 2010.

In economics news, Statistics Canada said today that the country's merchandise exports jumped 1.1%, while imports rose 3.9% in November. This had pushed the nation's deficit to $344 million in November from a surplus of $503 in the earlier month. In another report, it said home prices rose 0.4% in November, indicating growth in the housing market.

From across the border, the U.S. Commerce Department said today that trade deficit jumped to the highest level in 10 months to 9.7% in November. Deficit was at $36.4 billion as against the widely expected deficit of $34.5 billion.

Commodity, Currency Markets

Crude oil futures are receding $1.54 to $80.98 a barrel after declining $0.21 to $82.52 a barrel on Monday. Gold futures are currently slipping $4.60 to $1,146.80 an ounce. In the previous session, the precious metal fell $6.30 to $1,151.40 an ounce.

Among currencies, the U.S. dollar is trading at 92.44 yen compared to the 92.088 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.4476 compared to yesterday’s $1.4513.

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Asian Markets End Mixed; Alcoa Results Weigh

The markets across Asia ended mixed on Tuesday as traders reacted to weaker than expected results from aluminum major Alcoa (AA) and resorted to profit taking ahead of more earnings from the U.S. companies. While the markets in China, Japan, Indonesia and South Korea ended in positive territory, the markets in Australia, Hong Kong, India, Taiwan and Singapore ended in negative territory.

In Japan, the benchmark Nikkei 225 Index rose 80.82 points, or 0.8%, to 10,879, while the broader Topix index of all First Section issues advanced 12.84 points, or 1.4%, to 954.

On the economic front, an official report released by the Ministry of Finance revealed that Japan's current account surplus widened in November compared to the same period last year, primarily due to surplus in trade gap. According to the report, current account surplus surged up 76.9% year-on-year to 1.10 trillion yen from 623.6 billion yen reported in the same period last year. Economists expected the surplus to come in at 999.6 billion for the month. However, the surplus recorded in November was lower than the 1.40 trillion yen surplus reported in the previous month.

In a separate statement, the Bank of Japan revealed that bank lending in the country declined 1.2% year-over-year in December, the first decline since January 2006. In the preceding November month, the lending rose 0.1% year-over-year.

The Bank of Japan also reported that M2 money stock in the country rose 3.1% year-over-year in December, following a 3.3% annual increase in the previous month. On a seasonally adjusted monthly basis, M2 money stock declined 0.7% in December compared to a revised 0.8% gain in November.
 
Light sweet crude oil futures for February delivery ended at $81.99 a barrel in electronic trading, down $0.53 per barrel from previous close at $82.53 a barrel in New York on Monday.

Stocks of trading houses led the gains on optimism about US corporate earnings that unofficially kickstarted yesterday with the announcement of fourth quarter results by aluminum major Alcoa (AA) after the markets closed for trading.

Mitsubishi Corp advanced 1.98%, Mitsui & Co., climbed 2.97%, Itochu Corp. surged up 4.16%, Sumitomo Corp gained 2.26% and Toyota Tsusho Corp. added 0.83%.

Automotive stocks also ended in positive territory on speculation that US economy will contain to sustain the growth momentum. Toyota Motor surged up 3.91%, Honda Motor soared 4.08%, Nissan Motor rose 1.98%, Isuzu Motor climbed 3.65% and Suzuki Motor edged up 0.18%.

Shipping stocks ended higher. Kawasaki Kisen Kaisha gained 3.22%, Mitsui OSK Lines rose 2.47% and Nippon Yusen climbed 2.42%.

The beleaguered airliner Japan Airlines was a major drag in the market, having shed 45.59% in ask-only trading, as insolvency became imminent. Traders were concerned that the stock might still drop further and end up worthless before getting de-listed from the market. The other listed airline company, All Nippon Airways emerged the beneficiary of JAL's weakness, having surged up 4.24%.

Mixed trading was witnessed among bank stocks. Sumitomo Mitsui Financial fell 0.86% and Mizuho Financial fell 1.67% on concerns about repercussions of JAL's problems. However, Resona Holdings remained unchanged from previous close and Mitsubishi UFJ Financial climbed 2.09% on huge volumes.

In Australia, the benchmark S&P/ASX Index declined 51.20 points, or 1.03% to close at 4,900, while the All-Ordinaries Index ended at 4,932, representing a loss of 49.60 points, or 1.00%.

On the economic front, data released by the Australian Bureau of Statistics revealed that the total number of home loans declined unexpectedly by a seasonally adjusted 5.6% month-on-month during November coming in at 59,516, higher than the 1.6% decline reported in the previous month. The data further revealed that the total value of dwelling commitments was down 1.6% on month at A$22.82 billion.
 
In a separate report, the Statistics Bureau revealed that short-term visitor arrivals into the country decreased a seasonally adjusted 1.7% month-on-month in November, compared to a 0.3% gain in the previous month. The report revealed that a total of 472,800 arrivals were registered in November, down from 481,200 arrivals registered in October.

Light sweet crude oil futures for February delivery ended at $81.99 a barrel in electronic trading, down $0.53 per barrel from previous close at $82.53 a barrel in New York on Monday.

Resource stocks led the decline after Dow Component and Fortune 500 company, Alcoa reported fourth quarter results after the market closed for trading on Wall Street. While revenues were strong, earnings were lower than expected and missed analysts' estimates, triggering the fall.

Alumina, joint venture partner of Alcoa, declined 4.85%. BHP Billiton lost 2.20%, Minara Resources slumped 5.06%, Oz Minerals fell 1.98% and Rio Tinto shed 2.04%. Among metal stocks, Fortescue Metals shed 1.51%, Macarthur Coal lost 4.18% and Murchison Metals fell 3.21%.

Oil stocks also ended weaker. Woodside Petroleum slipped 1.32%, Oil Search lost 1.30% and Origin Energy fell 1.47%. However, Santos bucked the trend and ended in positive territory with a gain of 0.14%.

Mixed trading was witnessed among gold stocks. While Lihir Gold ended weaker with a loss of 1.16%, Newcrest Mining ended in positive territory with a gain of 1.25%.

Banks also ended mixed. While Commonwealth Bank of Australia and Westpac Banking Corp. ended unchanged from previous close, ANZ Bank slipped 0.58% and National Australia Bank lost 1.10%.

Telecom stocks ended weaker on profit taking. Telstra shed 1.19% and Singapore Telecommunications lost 1.27%.

Retail stocks ended in negative territory. David Jones slipped 0.99%, Harvey Norman shed 0.78%, JB Hi-Fi Ltd fell 1.64%, Wesfarmers lost 0.48% and Woolworths declined 0.75%.
 
In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 84.88 points, or 0.38%, at 22,327, as traders resorted to profit taking after recent gains. Weaker than expected fourth quarter results from Dow component and aluminum major Alcoa after the US market closed in the previous session rattled investors. Resource stocks ended weaker. Weak trading across other markets and profit taking also impacted market sentiment. As many as 27 of the 42 components in the index ended in negative territory.

In South Korea, the KOSPI Index ended in positive territory with a marginal gain of 4.27 points, or 0.27% at 1,699, as traders evinced fresh buying interest in technology stocks at lower levels on optimism about better US corporate earnings. Weakness in bank and brokerage stocks however, limited the gains.

A sell-off in heavyweight banking stocks amid fears about a squeeze in margins and a possible rise in non-performing assets in the banking sector in the coming months and considerable amount of profit taking in high-beta realty and commodity-related metal stocks dragged the Indian market notably lower on Tuesday. The benchmark BSE Sensex slipped into the red and finished at 17,423, down 104 points or 0.59%, while the Nifty fell 39 points or 0.74% to 5,210.

Among other major markets open for trading in the region, Taiwan's Weighted Index slipped 14.45 points, or 0.17% to close at 8,309 and Straits Times Index in Singapore declined 17.42 points, or 0.59%, to close at 2,916. However, Indonesia's Jakarta Composite Index gained 27.35 points, or 1.04% to close at 2,660, and China's Shanghai Composite Index rose 61.22 points, or 1.91%, to close at 3,274.

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The major European markets are lower across the board on Tuesday after the Chinese move to rein in lending triggered fears of a slowdown in growth domestically and the world at large.

The French CAC 40 Index and the German DAX Index are falling 1.36% and 1.77%, respectively, while the U.K.’s FTSE 100 Index is moving down 1.30%.

In economic news, a report released by the Royal Institute of Chartered Surveyors showed that a net 30% saw house prices rising in December, below November's three-year high of 35%. That was in contrast to expectations for a balance of 37%. The Institution said the loss of momentum was due to the traditional slowdown in activity during the Christmas season.

A separate house price survey by the U.K. Department of Communities and Local Government said house prices in the U.K. rose 1.7% month-over-month in November. Annually, house prices were up 0.6%.

Meanwhile, survey results by the Bank of France showed that confidence among French industries and service providers continued to rise at the end of 2009. A measure for industrial confidence climbed to 101 in December from 99 in November. Economists had forecast the reading to remain at 99.

U.K.'s seasonally adjusted deficit on trade in goods and services fell to 2.9 billion pounds in November from 3.1 billion pounds in October, a reported released by the Office for National Statistics showed. Economists expected a shortfall of 3 billion pounds for the month.

U.S. Economic Reports

With the value of imports increasing at a faster pace than the value of exports in the month of November, the Commerce Department reported that the U.S. trade deficit widened by more than economists had been expecting.

The trade deficit widened to $36.4 billion in November from a revised $33.2 billion in October. Economists had expected the deficit to widen to $34.6 billion from the $32.9 billion originally reported for the previous month.

Philadelphia Federal Reserve Bank President Charles Plosser is scheduled to speak about the economic outlook to the Entrepreneurs Forum of Greater Philadelphia at 7 PM ET.

Earnings

Infosys (INFY) reported an increase in its third quarter earnings on an IFRS basis to 59 cents per ADS, which exceeded the consensus estimate of 51 cents per ADS. However, on Indian GAAP basis and in rupee terms, earnings fell to 27.72 rupees per share from 28.63 rupees per share. Revenues on an IFRS basis rose to $1.232 billion from the year-ago’s $1.171 billion and also exceeded the consensus estimate of $1.17 billion. The company issued above-consensus guidance for the fourth quarter and upwardly revised its outlook for the full year ending March 2010.

KB Home (KBH) reported that its fourth quarter revenues fell 27% year-over-year to $674.6 million, ahead of the consensus estimate of $577.54 million. The company reported a net profit of $1.31 per share, including a tax benefit, compared to a pre-tax loss of $3.96 per share last year, with the year-ago loss stemming mainly from non-cash charges related to inventory, joint venture impairments and land option contract abandonments and related to goodwill impairment.

SUPERVALUE (SVU) said its third quarter net sales were $9.2 billion, lower than $10.2 billion. The company reported earnings of 51 cents per share compared to a loss of $13.95 per share in the year-ago period. On an adjusted basis, the year-ago’s earnings would have been 62 cents per share. Analysts estimated earnings of 40 cents per share on revenues of $9.43 billion. For the full year, the company expects non-GAAP earnings of $2.01-$2.11 per share.

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Alcoa tumbled in Monday’s after hours session after it reported that its fourth quarter loss, including 27 cents per share in charges, was 28 cents per share compared to a loss of $1.49 per share in the year-ago period. Revenues climbed 18% year-over-year to $5.4 billion. The consensus estimates called for earnings of 6 cents per share on revenues of $4.82 billion. Analysts’ estimates typically exclude one-time items.

Brown Shoe is likely to move in reaction to its announcement ahead of a presentation at an investor conference. The company said in the release that same store sales at its Famous Footwear division rose 7% for the nine weeks ended January 2nd, 2010, while same store sales at its Specialty Retail division increased 4.9%.

Lawson Software moved lower in Monday’s after hours session after it announced that it has closed its acquisition of Healthvision Solutions through the acquisition of the latter’s parent Quovadx Holdings. The deal was valued at $160 million and closed on January 11th, 2010.

Phillips-Van Heusen is expected to gain ground after it said it is upwardly revising its fourth quarter earnings per share guidance to 52-54 cents per share from its previous guidance of 38-42 cents per share. The company expects revenues to rise 7%-8% year-over-year to $603 million to $608 million. Analysts had been expecting earnings of 44 cents per share on revenues of $595.05 million. The company attributed the optimism to strong performance throughout the quarter, including during the holiday season. The company also raised its guidance for the full year.

Shoe Carnival is likely to recede after it said its expects fourth quarter net sales to be in the range of $168 million to $169 million, which is below the consensus estimate of $169.36 million. The company now expects same store sales to increase by 7%-8%, higher than its earlier estimate of 3%-5% growth.

Electronic Arts tumbled in Monday’s after hours session after it cut its fiscal 2010 non-GAAP revenue guidance to $4.125 billion to $4.2 billion. The company also lowered its non-GAAP earnings per share guidance to 40-55 cents per share from its previous estimate of 70 cents to $1 per share. The Street had been expecting earnings of 79 cents per share on revenues of $4.26 billion. For the third quarter, the company expects non-GAAP earnings of 29-33 cents per share on revenues of $1.33 billion to $1.35 billion. Analysts estimate earnings of 56 cents per share on revenues of $1.42 billion for the quarter.

Hutchinson Technology could also be in focus after it announced preliminary first quarter results, expecting net sales of $108.3 million. The company also said it expects net income to be modestly above break-even. Analysts estimates, which typically exclude one-time items, call for a loss of 1 cent per share on revenues of $104.99 million.

Danaher is likely to move in reaction to its announcement that it has acquired and received acceptances in respect of about 97% of the currently issued shares of U.K.-based Genetix in relation to its previously announced offer.

WD-40 Co. may see some activity after it announced that its first quarter sales fell 7% to $77.7 million. The company’s earnings rose to 56 cents per share from the year-ago’s 46 cents per share. Analysts estimated earnings of 51 cents per share on revenues of $81.28 million. The company expects full year sales of $298 million to $318 million and earnings of $1.80-$1.95 per share. The consensus estimates call for earnings of $1.92 per share on revenues of $320.88 million.

Heinz could be in focus after it reaffirmed its earnings per share from continuing operations guidance for fiscal 2010 at $2.72-$2.82 per share. The company noted the earnings include a preliminary estimate from the currency devaluation in Venezuela. Analysts’ estimates, which typically exclude one-time items, call for earnings of $2.82 per share on revenues of $10.61 billion.

Chevron receded in Monday’s after hours session after it issued its interim update for its fourth quarter. The company said it expects fourth quarter earnings to be lower than in the third quarter of 2009, as weak refining margins are likely to drag downstream results.

GameStop is likely to see some activity after it unveiled its 2010 capital allocation plan, which calls for providing ample investment capital for continued aggressive new store expansion worldwide. Additionally, the plan allows for the buyback of about $300 million worth of shares. The company expects the share repurchase program to be accretive to EPS by about 10%.

Shanda Interactive Entertainment may react to its announcement that its wholly-owned subsidiary Shanda Online has appointed Xu Chaojun as its Chief Operating Officer.

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